Future of Work

Welcome back. Please invite your friends and colleagues to join the conversation. Let me know what you think about what you are reading here and in the daily stream. Just reply to this email, or drop me an email at steve@axios.com. Let's start with a raging discussion among those in the AI community.

1. The problem with "AI washing"

Lazaro Game / Axios

We are in a robot-and-artificial intelligence bubble, and experts are starting to push back. Among their gripes: over-the-top hype of AI's capabilities and its near-term danger to society.

One of those grumblingis Rodney Brooks, a father of modern robotics. He tells Axios that we are not near an age of super-human machines — robots are here, but not about to take over:

"AI is not inherently powerful. In hundreds of years, it could be different. But we aren't on the cusp of this."

Some companies are making exaggerated claims of AI capability in their products.

Where we are now: In terms of commercial products, we are in an age of simple robots doing the simplest of tasks again and again, mainly because no one has yet invented one that reliably does something more complicated that is actually in demand. We are talking machines like the Roomba, the robot vacuum cleaner of which Brooks is a co-inventor. "Customers want something that out of the box will just work, at a price they want to pay," he says. "And they don't want to read a manual."

Where we're going: The greatest near-term need is robots that will help the elderly stay in their homes, he says. "We will be lucky if we have enough robots to fill the gaps needed for the aging population. They will be dumb robots."

2. China declares AI race with U.S.

AlphaGo's defeat of Go master Ke Jie has led China to a Sputnik moment, per the NYT. That worries U.S. artificial intelligence experts.

In a plan released Thursday, China declared that it will catch up to the U.S. in AI research by 2020, and a decade later, "become the world's premier artificial intelligence innovation center."

In short, China said that it — and not the U.S. — will dominate artificial intelligence.

This is not an ambush: Just nine months ago, the Obama Administration itself put down U.S. chips on AI in a 58-page white paper issued on White House stationery. The study counted up back-to-back years of $1 billion in unclassified U.S. government investment in AI research in 2015 and 2016, in addition to billions more by U.S. tech giants every year, and smaller companies.

Add in China's suggestion of multiples of U.S. spending in the coming decade and a half, the colossal foothold already grabbed by Chinese giants Baidu, Tencent and Alibaba, the discouragement that Trump has instilled in foreign science and tech students from staying in the U.S., and Chinese investment in U.S. AI startups, and you start to understand why U.S. experts are concerned.

3. E-commerce's next victim: commercial real estate

Creative Commons

The shift to on-line shopping is now striking at the underlying value of malls, and commercial real estate as a whole.

About $120 billion in U.S. commercial mortgages mature this year: Borrowers went delinquent on about $2.4 billion of it in June alone, according to Trepp, a real estate data provider, quoted by the WSJ. It was the largest rise in delinquencies in six years, according to Fitch, the rating agency. Fitch's silver lining: it's not as bad as it expected at the beginning of the year.

Still, more defaults are coming: The credit industry expects delinquencies on such debt to escalate over the coming year, according to a new poll of portfolio managers, and to spread globally.

Look at this number:In the FT, Blackstone executive Nadeem Meghji said the value of regional malls in smaller cities may be down 40% on average over the last two years.

We are only seven months into the year:Again from the FT, retailers say they will close 76 million square feet of store space this year, almost as much as they announced in all of 2016.

"Second-order effects": Joe Brusuelas, chief economist at RSM, an auditing firm, tells Axios that the plunge in valuations is likely to spread to office buildings and other commercial real estate. That will then affect surrounding communities. "They won't have those property taxes," he said.

5. 1 vindicated thing: A much-lambasted forecast

In 1995, Clifford Stoll, an infectiously enthusiastic astronomer who mildly resembles Emmett Brown, Marty McFly's wild-haired scientist friend in Back to the Future, forecast our Internet miasma, one not of carefree democracy but "handles, harassment, and anonymous threats."

For that, he was sent into scientific purgatory, forever to be mocked and trolled. As we know now from fake news bots, the 2016 U.S. election, and the blocked Chinese internet, Stoll was right, per Rob Howard at Medium.

Not entirely right, mind you: Stoll, for instance, did not foresee the reasonably safe transfer of money through cyberspace, or the cratering of malls. But he was sufficiently accurate to deserve a massive apology from the scientific and tech community, including:

"A network chat line is a limp substitute for meeting friends over coffee."

The working homeless isn't just a tech bubble problem

The working homeless are an international problem. Here, day laborers in Osaka, Japan. Tomohiro Ohsumi / Bloomberg via Getty Images

In big cities across the U.S., thousands of people trudge off to work in the morning but, lacking enough money for sky-high rent, are living at night in homeless shelters, cars, RVs, side streets and parking lots, often with their entire family.

Quick take: For a couple of months, we have heard about the problem of working homelessness in the tech hubs of Seattle and San Francisco. But there is a similar plight in Dallas, New York, Washington, D.C., and elsewhere.

An invisible problem: Cities only rarely keep track of their local working homeless, and the federal government does not collate raw data that could more sharply define the scale of the problem. To write this story, we called to agencies, shelters and experts around the nation.

Jason Leopold, a researcher at the Urban Institute, said the percentage of homeless people who work may be close to 25%, maybe a little more. Megan Hustings, director of the National Coalition for the Homeless, suggested higher percentages — 40% to 60% of the homeless float in and out of both part- and full-time work, she said.

Here are our top findings:

Washington, D.C.: 22% of homeless single adults and 32% of adults in homeless families are employed, according to a 2017 report by the Washington Council of Governments. The city has 11,128 homeless people, according to official figures.

New York: About 70% of the city's approximately 60,000 people living in homeless shelters are families, and 34% of the families include a working adult, Arianna Fishman of the city's Department of Human Services tells Axios. Women in Need, the city's largest provider of shelter, said that 53% of the homeless moms in its residences are working.

Baltimore: In a Point in Time count on Jan. 22, 6% of the 546 people who were not staying in shelters said they were employed.

Chicago: In aPoint in Time survey on Jan. 26, 25% of the 4,100 homeless people in shelters said they were employed.

Boston: 42% of homeless people 18-25 years old in Suffolk County were employed, according to the 2016 Massachusetts Youth Count.

New Haven, CT: About a third of the 160 homeless families served by Melville Charitable Trust in New Haven, CT, are working, according to Becca Allen, a program officer; a quarter of them have some college education and 43% graduated high school.

Mariam Nek, director of the AimHire program at Friendship Place in Washington, D.C., said the working homeless range in former circumstances. One man she helped was a “very successful loan banker … [who] lost everything because of the financial crisis" and lived out of his car, she said.

Over time, Nek said, people who are homeless and working figure out “a way to deal with 'where do I go to shower? Where do I keep my stuff when I go to my job?'" because they have to when they can't afford to pay rent.

The Heartland Alliance offers housing and training programs so people can get on their feet. But Nancy Phillips, senior director of Heartland's Pathways to Success Initiatives, said “sometimes people won't even say that they're homeless on the first meeting ... because they're worried that we won't let them into the training program."

Sobering numbers: The National Low Income Housing Coalition (NLIHC) reports that to afford a two-bedroom rental unit in the U.S. in 2017, renters need to earn $21.21 per hour on average. That's $13.96 higher than the federal minimum wage of $7.25. It's $4.83 higher than the average hourly national wage, $16.38.

“In no state in the entire country can a family working full time at minimum wage afford an average apartment."— Becca Allen of the Melville Charitable Trust

Farenthold faces new allegations from male staffer

Texas Rep. Blake Farenthold. Photo: Jacquelyn Martin / AP

A former communications director for Rep. Blake Farenthold told CNN that the Texas congressman's office was such "an intensely hostile environment" that he was "[driven]...to physical and emotional distress."

Why it matters: The House Ethics Committee is already investigating Farenthold for separate sexual harassment allegations, which were reportedly settled by the Office of Congressional Ethics in 2014 for $84,000. Rekola shared his allegations with the office of Rep. Susan Brooks, the chairwoman of the committee.

In 2015, when the former staffer, Michael Rekola, was about to leave town for his wedding, Farenthold told him: "Better have your fiancee blow you before she walks down the aisle — it will be the last time."

Rekola said he was "disgusted," and gave his two weeks notice upon returning from the wedding. Farenthold denied making the comment.

Rekola told CNN that Farenthold called him a "f---tard," and another staffer confirmed that he regularly referred to aides that way. Farenthold told CNN he called aides that it "in jest," but that in hindsight, "it wasn't appropriate."

PBS suspends "Tavis Smiley" for sexual misconduct

The late-night show "Tavis Smiley" was suspended by PBS after an investigation of Smiley that resulted in "multiple, credible allegations of conduct that is inconsistent with the values and standards of PBS," Variety reports.

Per Variety, the investigation revealed sexual relationships with subordinates, and a "verbally abusive and threatening environment" created by Smiley.

Why it matters: Another powerful man has been taken down by allegations of sexual misconduct, joining dozens of other men.

Microsoft taps AI, Reddit to make Bing smarter

Microsoft announced a bunch of new partnerships Wednesday as it aims to show itself as a leader in the field of artificial intelligence. It's also adding a bunch of AI-powered features to its own products, including its Bing search engine along with a deep integration of content from Reddit.

Why it matters: AI is one of the hottest areas in tech and Microsoft is competing with Google, Facebook, IBM and others for talent, mindshare and deals.

Partnerships: Microsoft announced efforts with a range of companies, including Reddit, UPS and China's Cheetah Mobile. In the Reddit deal, Microsoft's Bing search engine will use content from the online discussion community, including its popular "Ask Me Anything" Q&As.

Internal efforts

On the Bing front, Microsoft is using AI to deliver answers that combine information from multiple sites. That can allow results that compare different arguments on an issue, explore the differences between two things or just deliver a summary of facts from more than one place, with footnotes showing where the information came from. It is also making Bing more conversational and allowing people to search within images.

With Cortana, Microsoft is trying to help its digital assistant stand out from a crowded pack that includes Apple's Siri, Google's Assistant and Amazon's Alexa. Microsoft's case is that it is the only digital assistant that stretches across work and personal life. To that end, Microsoft said Cortana can now understand calendar and other data from Google's Gmail. It's also building Cortana into Android apps, including the CM Launcher app from China's Cheetah Mobile.

Microsoft is also expanding its use of AI in Office 365. A new insights feature will automatically make charts showing trends within a complex spreadsheet. Within word, AI will help make sense of acronyms within a document using other documents within the company. Microsoft already prioritizes which e-mails to read first, but a new feature will help find the action items within Outlook.

The debate over inequality

Last week, we reported that the wage inequality gap in the U.S., a primary source of the polarization among Americans, has been shrinking: For five straight quarters, wages have been growing the most for U.S. workers with only a high school diploma.

"Surely you're kidding?" wrote James Harvey, executive director of the National Superintendents Roundtable. The percentage wage increase is better for high school graduates, he said, but the dollar increase still favors the rich: a 3.3% raise for someone making $20,000 a year is $660—only an eighth of the $5,000 raise going to someone earning $500,000 and getting a 1% increase.

In a phone call, Upwork CEO Stephane Kasriel told me, "The 1% is doing a lot better, and for the 30% and 40% at the bottom, it keeps getting worse."

Quick take: The times do indisputably favor the rich:

When adjusted for inflation,U.S. wages are up only 10% from almost a half-century ago.

Meanwhile, wealth held by the top 1% has surged: it rose to 38.6% of the total in 2016, from 36.3% in 2013, the Fed said in a report in September, while the bottom 90%'s wealth has fallen for almost three decades—last year, it was 22.8% of the total, compared with 33.2% in 1989.

And Charlie Allenson, a FoW reader in New York, made another point: "Many of those chronically not working are not getting back to work. Namely, those more 'mature' workers. Ageism rolls on. Personal example: People look at my website and love my work. They meet me, see the gray hair and suddenly they're going in a 'different direction.' This is a constant for me. And it sucks."

But there are in fact signs of an improvement in the fortunes of ordinary people, and wages and salaries are among them, says Jed Kolko, chief economist at Indeed.com, the jobs listing website, who wrote the blog post on which we were reporting. In an email exchange, Kolko told me:

Harvey and Kasriel are correct to single out the vast concentration of income at the top, comprised largely of non-wage earnings like capital gains, interest and dividends—which combined are how the wealthy make most of their money.

But wages earned for work are another lens into the inequality story, and in that realm, the gap indeed has narrowed.

The shrinking wage gap is important to watch because wages and salaries are a large component of pre-tax money income, which includes interest, dividends and income from property. The Bureau of Labor Statistics puts the proportion at 76.8%. (see pages 8-9 in this BLS report).

The Fed, too, has noted the trend favoring less-educated workers. According to a Fed report released in September, income rose from 2013 through 2016 for all income groups, after accounting for inflation, which was a change from the prior three years, when income was stagnant. But the highest growth — an average of 25% — was among families without a high school diploma; in the 2010 to 2013 period, income fell for these workers, the Fed said.

Thought bubble: Inequality is not an absolute metric. If it were, ordinary people could legitimately lash out about wealth at the top regardless of how they themselves were faring. The rise of wages at the bottom and in the middle is slow, and the trend could halt—that is a point that Kolko makes. But it remains notable that the numbers are no longer going only in one, inexorable direction—there are metrics pointing to growing wages and salaries, and more jobs, for those whom the economy has been leaving behind.

Bitcoin: 'This is a casino, not an investment'

Illustration: Lazaro Gamio / Axios

Bitcoin is up about 1,700% since the start of the year. Some attribute the surge to ordinary, if enthusiastic, investment, along with the forces of supply and demand. Others say it's a bubble, and that it will ultimately burst. Joe Borg, president of the North American Securities Administrators Association, a grouping of state securities officials, suggests it's the latter. "This is a casino," he tells Axios, "not an investment."

The bottom line: Borg, who is also director of the Alabama Securities Commission, says he could be wrong and that those who say bitcoin is just "another type of investment" will be proven correct. But he sees worrying signs of a classic investment mania.

People have told him they have taken out home equity lines of credit to buy bitcoin.

Those doing so, he said, are mostly millennials and young baby boomers.

"They seem to think anything electronic is a game," Borg said. "There are entrepreneurs who run Facebook, and they put this in the same category."

Thought bubble: If bitcoin collapses, which has been the normal course in big, sudden investment manias, the price is highly unlikely to go to zero, meaning a lot of people will still be in the money. But lots of people will lose, too, including perhaps some who have taken out those home equity lines of credit.

That there is a fever is indisputable. It is global, and especially heavy in Asia. Ordinary South Koreans are the most aggressive bitcoin investors, in addition to Hong Kong Chinese, Japanese and Vietnamese, report the WSJ's Steven Russolillo and Eun-Young Jeong. Together, they account for almost 80% of global bitcoin trading. Other reminders of fevers past:

Most of these Asians buying bitcoin are the general public, not professional traders.

At the point last week when bitcoin went above $17,000, it was almost $25,000 in South Korea, almost 50% higher, the WSJ said. In other words, the trade is chaotic to the point of irrationality.

At the FT, Izabella Kaminska writes today that even central banks are "getting drunk on the collective cryptocurrency/blockchain Kool-Aid."

A point that increasing numbers of observers are making is that bitcoin is only an investment, with no other real-life, large-scale utility, at least at present: bitcoin and other cryptocurrencies are too slow and cumbersome to serve as money, their original purpose.

In a speech today in Sydney, Phillip Lowe, the governor of the Reserve Bank of Australia, makes the point: "The current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment."

Jones gets 'gracious' call from Trump, invited to the White House

Doug Jones is greeted by a supporter before speaking during an election-night watch party Tuesday, Dec. 12, 2017, in Birmingham, Ala. Photo: John Bazemore / AP

Senator-elect Doug Jones of Alabama on Wednesday said had "a very gracious" phone call with President Donald Trump, in which he was invited to visit the White House and congratulated for his stunning campaign victory.

“It was a very gracious call. I very much appreciate it. He congratulated me on the race that we won. He congratulated me and my staff in the manner in which we handled this campaign and went forward. And we talked about finding that common ground, to work together. And he invited me over to the White House to visit as soon as I get up [to Congress],” — Doug Jones at a press conference

Here's the DOJ's letter that delayed the Waymo-Uber trial

In a letter to the judge overseeing Waymo's lawsuit against Uber, the Justice Department says that a former Uber employee suspected the company helped its then-CEO covertly communicate with a startup the company eventually acquired. A document detailing the employee's original concerns will be released on Friday.

Why it matters: The Justice Department's notice to the court led to a second delay to the trial between the two companies. The ex-Uber employee's concerns, which he communicated to the company back in May after being fired, were never mentioned in the case until that point, raising questions about whether the ride-hailing company was purposefully hiding.

This is also the first confirmation of a Justice Department criminal probe into Uber, beyond rumors and media reports.

However: Another Uber employee testified last month in court that the presentation he gave on secretive communications, referenced by the former employee and Justice Department, was purely hypothetical. In fact, he and his team had no idea that Kalanick and the startup's founder communicated without leaving a trace until Bloomberg published an article detailing their tactics months later. Uber also argued in court that the former employee sought to extort money from the company after getting fired for poor performance.

Note: The case was referred in May to the U.S. Attorney's Office for a potential criminal probe.

Why Republicans should worry about 2018

Doug Jones is the first Democratic senator Alabama has elected since 1992. His surprising victory continues a trend we've seen in other elections this year — Democratic voters are turning out in significant numbers and independent voters are leaning more toward Democrats. Axios' Alexi McCammond breaks down why that should worry Republicans heading into 2018:

Trump: We are "days away" from passing tax cuts

Screenshot

President Trump delivered his closing arguments on tax reform Wednesday afternoon, just hours after GOP lawmakers reached an agreement on an overhaul package. Trump emphasized how passing tax cuts was a key campaign promise, and said "now we're just days away" from keeping it.

Key quote: "But we need your help to get Congress across that finish line. We'll have very little Democratic support, probably none, and that's purely for political reasons. They like it a lot, and they can't say it ... some day we have to come together and do bipartisan — and hopefully it can happen soon."